Farm Horizons, February 2000

Co-ops changing over the years

Like many aspects of agriculture, cooperatives have gone
through a number of changes over the years.

Gone is the sole mission to ensure that a farmer's product
makes it to market.

Take dairy cooperatives for instance.

Maybe 100 to 110 years ago, refrigeration and transportation
were key reasons for farmers to band together. With hundreds of pounds
of milk between them, that product had to be sold before it perished.

Now, refrigeration and transportation are commonplace and
cooperatives are more widespread. There still are, of course, dairy cooperatives,
but the Capper-Volstead Act of 1922 allowed the formation of many different
types of cooperatives as long as they included agricultural producers.

Later, even that qualification opened up. Now, there are
bee-keeping cooperatives, rural electric cooperatives, farm supply cooperatives,
and a funeral home cooperative. All, essentially, have a mission to serve
their members.

Other aspects have changed as well.

Like many businesses in the United States, the cooperatives
have also seen a large number of mergers, with some cooperatives, like Dairy
Farmers of America (DFA), Associated Milk Producers Inc. (AMPI), and Land
O' Lakes forming nationwide membership rolls.

Each of these is represented here in our area and can boast
tens of thousands of members.

For instance, DFA, which was established Jan. 1, 1998,
by consolidating four regional dairy marketing cooperatives (one fourth
of which was the southern region of AMPI), has 20,000 members and markets
more than 37 billion pounds of milk. In 1998, its sales totaled $7.3 billion
in the U.S. and around the world.

Moreover, DFA includes 33 manufacturing plants providing
a wide range of dairy products such as cheese, coffee creamers, butter,
infant formula, dehydrated products and more. Recently, DFA's Winsted plant
changed its production from cheese to a dried cheese powder for various
snack foods.

DFA can also boast a number of national brands of its own
products, such as Borden Cheese. DFA also has its own research and development
center in Springfield, Mo.

The size and strength of the DFA cooperative indicates
a major difference from the cooperatives of 100 years ago where, for example,
a different cooperative could be found every five to 10 miles, or where
farmers simply banded together to purchase a storage station.

Dan Reuwee, director of membership communication for DFA,
said that despite all the changes, the principle is still the same - in
part, to market milk, but also, primarily, to serve DFA's members.

He added that size has simply become an issue in agriculture,
just as in any other industry. Since producers now need to serve large buyers
and customers, it only makes sense that their side also consolidates and
merges as well.

"We're just running to keep up with everybody,"
he said.

Reuwee noted that for cooperatives to survive in a competitive
market, they must do more than just pick up members' milk, but also competitively
provide services to farmers.

Another consideration to consolidation and merger is the
fact that there are fewer dairy farmers, but more product. With large, highly
productive herds, the issues of transportation and storage require costly
and sophisticated facilities.

This requires an entirely different kind of institution
than 100 years ago when cooperatives were scattered along the landscape.
Getting even 100 or so members together for a decision-making session was
certainly easier than dealing with, say, 20,000 members to conduct business.

Reuwee noted that the procedure is a complicated one. It
requires a form of representation, where one delegate can represent 50 farmers.
Currently, DFA is holding meetings across the nation to decide on proposed
resolutions, a process which will take some time.

DFA's growth is indicative of others in the industry. AMPI
has also grown, including the acquisition of Glencoe Butter and Produce
last year. This growth is necessary to be competitive in the marketplace.

Joe Neubauer, University of Minnesota extension agent for
McLeod County, sees the trend of acquisition continuing.

He believes there is a need for cooperatives to continue
offering more services, as well as developing value-added products.

However, he admits the size of today's cooperatives deserves
some consideration. He has heard some producers wonder at times if the cooperative
is doing the best for them, or for the cooperative.

Moreover, Neubauer points out that cooperatives, themselves,
are a big change for farmers. With increasing size, change is happening
very quickly and may not be easy for every producer to adjust to.

Size alone is not the only change in cooperatives. The
manner in which cooperatives do business is also different.

Waconia Farm Supply, for instance, started in the 1800s
as a milk cooperative. Its creamery closed in the 1940s and in 1947, it
was changed to a farm supply cooperative to "see to the needs of rural
America," as General Manager Mike Loscheider put it.

Today, Waconia Farm Supply is a far cry from its roots.
Upon entering its location, one finds an Ace hardware store where stockholders
and members can buy everything including snow plows, tools, boots and anything
else a hardware store typically offers.

The cooperative continues to supply products like agricultural
equipment, fertilizer, seed and feed, etc., successfully, according to Loscheider.
But along with agricultural products, snowmobiles and ATVs are also part
of the inventory.

Loscheider said the unique position of the cooperative's
location near the metro area makes it necessary to put the focus on supplying
both the rural producer, or stockholder, and the member, or customer. Thus,
the cooperative provides services to cater to both groups.

Both groups come with their own set of circumstances. The
stockholder is a traditional cooperative member, with the right to vote
on decisions and receive dividends. The member also receives those dividends
depending on the amount of patronage he/she gives to the cooperative, but
does not have a voting privilege. The set-up gives Waconia Farm Supply a
unique opportunity in diversity, according to Loscheider.

Clearly, this diversity has been successful, as Loscheider
points out that since 1985 when he started, the cooperative has grown from
$2.3 million to $22 million.

On top of that, the cooperative has continued to be competitive
in obtaining contracts from the state for equipment. This opens up an opportunity
to provide equipment for everything to landscapers to golf courses. Loscheider
said that the cooperative is aggressive in seeking those kinds of opportunities
for its members.

Being a cooperative, Loscheider explains that the store's
price may not always be the lowest and that Waconia Farm Supply can't always
compete with "the big boxes" like Fleet Farm. However, he is confident
that service will and has brought in customers.

The cooperative remains local and part of the community,
and that may bring in customers as well. Loscheider noted that a local business
is more likely to donate to a local high school than an outside business
chain.

Thus, the concern for customers to shop local is one that
Loscheider trumpets. "Nobody ever misses a local business until it's
gone," he said.

In part, the location of Waconia Farm Supply also brings
in customers. Some people do not want to drive east into the Twin Cities
to shop and parking is easier outside of the metro.

All of this points to different kinds of cooperatives than
before ­ ones that have grown not just in size, but in services and
markets.

When asked whether Loscheider thought whether older producers
would recognize Waconia Farm Supply from the cooperatives of the past, Loscheider
said, "Yes and no. We started the farm supply division in 1947, so
that goes back quite a ways.

"There are many of the old timers who have done business
with this cooperative. There are cooperatives out there that are a lot older
than we are, that haven't changed a whole lot.

"I think it is important that cooperatives in general
need to do some changing with the times. They need to be a leader and they
need to be innovative. It's our job to bring our customers new technologies
and things to make them more profitable.

"That is part of our bottom line; the more successful
our farmers are, the more successful we are."